Investing in the United States 2013
Audit | Tax | Advisory
All lasting business is built on friendship.
Alfred A. Montapert
TABLE OF CONTENTS
5
Introduction
7
About Crowe Horwath International
8
Investing in the United States
Investing in the United States
with Crowe Horwath International
INTRODUCTION
Welcome to the Crowe Horwath International “Investing in the United
States 2013” guidebook.
This guide forms an extended part of the “Investing in Asia Pacific 2013”
series and provides a quick reference for those interested in investing in
the United States. The US is one of the two largest outbound
destinations from Asia Pacific, the other being the United Kingdom.
While it is not exhaustive, this guide aims to answer some of the key
questions that may arise. When specific issues arise in practice, it will
often be necessary to consider the relevant laws and regulations and to
obtain appropriate professional advice.
The guidebook will cover five main topics as follows:
Establishing the business entity
Tax information
IPO quick facts
Human resource requirements
Withdrawal procedures
Business is in itself a power.
Garet Garrett
ABOUT CROWE HORWATH
INTERNATIONAL
Crowe Horwath International is ranked among the top 10 global
accounting networks with more than 150 independent accounting and
advisory services firms in over 100 countries around the world. Crowe
Horwath International’s member firms are committed to impeccable
quality service, highly integrated service delivery processes and a
common set of core values that guide decisions daily.
Each firm is well-established as a leader in its national business
community and is staffed by nationals, thereby providing a knowledge
of local laws and customs which is important to clients undertaking
new ventures or expanding into other countries. Crowe Horwath
International member firms are known for their personal service to
privately and publicly held businesses in all sectors and have built an
international reputation in the areas of audit, tax and advisory
services.
United States
Establishing the business entity
Contact
Steven Levey
CHIEF
EXECUTIVE OFFICER
slevey@ghphorwath.com
Michael Filkoski
SENIOR PRINCIPAL AND
HEAD OF AUDIT
DEPARTMENT
mfilkoski@ghphorwath.com
GREG BUTEYN
DIRECTOR OF
INTERNATIONAL
TAX SERVICES
gbuteyn@ghphorwath.com
+1 303 831 5000
1. Formation and costs
Company
In the United States, state law governs the formation of business entities. There are no federal laws
regulating business forms. A business will be organized under the law of a specific state, and a
business is free to select the applicable state. The main forms of business in the United States are
Corporations, Limited Liability Companies (LLC’s), Partnerships, Joint Ventures or Sole
Proprietorships.
For general information on starting a business, log on to:
http://www.irs.gov/businesses/small/article/0,,id=99336,00.html and
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Business-Structures
Branch
No specific legal registration requirements to establish a branch; however, tax and state/local
business permits may be required.
2. Investment incentives
Company
The United States federal government usually does not provide special incentives for foreign
investors; however credits or incentives may be available at the state and local government levels.
Branch
A branch of a foreign company may conduct the same activities under the same conditions as a
United States subsidiary.
3. Foreign ownership restrictions
Company
Generally, there are no restrictions on foreign ownership of a company formed in the United States.
However, special governmental approval may be required in matters of national security. The
procedure for a foreign citizen to form a company in the United States is the same as for a United
States resident.
For additional information, log on to:
http://www.usa.gov/Business/Foreign_Business.shtml
Branch
Same as for company.
4. Work permits and visas
Company
Work permits and visas are obtained through applications with the United States federal
government. The application and issuance of work permits and visas can take several weeks or
even months. It is highly advised to work with a qualified visa/immigration attorney.
Branch
Same as for company.
5. Accounting standards and audit requirements
Company
The adoption of IFRS for all companies was being considered by the Securities and Exchange
Commission (SEC). However, the SEC’s final staff report on the adoption of IFRS issued in July
2012 did not indicate that the SEC has made any policy decision about whether to adopt IFRS.
There are no statutory audit requirements in the United States; however, audits are required for
certain companies listed in the United States, employee benefit plans (meeting certain participant
requirements) and nonfederal entities that expend US$ 500,000 or more of federal grant awards in a
fiscal year. However, many financial institutions and investors may require an audit as a condition of
a loan or investment.
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Branch
Same as for company.
Crowe Horwath International
Investing in the United States 2013
6. Residential directors/ promoters requirements
Company
There is generally no legal requirement that any director or promoter must be a United States
resident.
Branch
Same as for company.
7. Foreign ownership over tangible assets
Company
Generally no restrictions
Branch
No restrictions.
8. Country quirks
Branch
Foreign company branches operating in the United States may subject the foreign company to all
legal claims and liability for the acts and business of the branch.
Tax information
1. Tax rates on corporate income
Currently, federal income tax rates range from 15% to 35%. See specific information published by
the United States IRS at http://www.irs.gov/businesses/small/article/0,,id=98240,00.html.
State and local income tax rates vary by jurisdiction. See
http://en.wikipedia.org/wiki/State_income_tax for a non-authoritative summary.
2. Other taxes
Sales and use taxes are generally imposed by state and local jurisdictions. United States Federal
Excise taxes apply to certain transportation assets, transportation fuels, automobiles, medical
devices and health insurance items. See
http://en.wikipedia.org/wiki/Sales_taxes_in_the_United_States for a non-authoritative summary.
3. Branch income
In general, income earned by a branch operating in the United States is taxed in the year it is
earned similar to how it would be taxed if the income were earned by a United States company.
In addition, the branch-profits tax is imposed when funds are deemed to be repatriated to a parent
corporation from a United States branch. The branch profits tax is a flat 30% tax on the parent
corporation’s dividend equivalent amount. These are the general rules but they can be overridden
by tax treaties.
4. Income determination
If using a branch, foreign parents are generally taxed only on their United States-source income
(effectively connected income). United States subsidiaries of foreign businesses are generally taxed
on the subsidiary’s worldwide income the same as other domestic companies, but have additional
filing requirements. Closing inventory can be valued by using cost, lower of cost or market, or
another reasonable method. Depending on the size of the company and other factors, certain
indirect costs may be required to be capitalized into closing inventory. For corporations, capital
gains are taxed at ordinary income rates and capital losses can only be used to the extent they are
offset by capital gains. Intercompany dividends can qualify for a special dividends-received
deduction but there are additional limitations on this deduction for dividends from foreign
corporations. Stock dividends are generally not considered to be current income. There are special
rules regarding taxation of gains on foreign owned real estate.
5. Deductions
In general, ordinary and necessary business expenses, including depreciation and depletion, are
allowable for United States income tax purposes. Depreciation is generally computed on a
double-declining basis over a useful life determined by tables authored by the United States taxing
authorities. Additional first-year depreciation expenses are usually available depending on the
amount of assets placed in service and current law. In general, net operating losses can be carried
back two (2) years and forward 20 years. Accrued amounts due to foreign affiliates may be required
to be deferred until actually paid. Interest to unrelated third parties is generally deductible. There
are several limitations on interest paid to foreign affiliates which can limit the interest deduction to a
corporation or result in a tax on excess interest to a branch. State and local taxes are deductible
and credit is available for foreign taxes paid by a United States corporation.
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Crowe Horwath International
Investing in the United States 2013
6. Group taxation policies
Groups of affiliated United States corporations with a common United States parent may elect to file
a consolidated return. Related groups of United States companies not filing a consolidated return
are required to share certain tax incentives such as the election to expense fixed asset purchases
and the alternative minimum tax exemption.
7. Tax incentives
From time to time the United States federal government offers payroll tax credits for hiring workers
in the United States. If you contact various states or localities that you are interested in doing
business in they may have incentives for creating jobs in their state, county or city. It is always best
to contact the local jurisdictions before making a final decision on where to locate so that you have
more flexibility in negotiating terms. Incentives can range from property tax abatements to state
sponsored employee training.
8. Withholding tax
Dividends
Interest
Royalties
Technical fee
Branch profit
30%
30%
30%
0%
15% to 35% graduated rate; Same as corporation.
*All withholding amounts may be subject to treaty relief.
9. Tax administration
Most federal returns must be filed electronically and payments are required to be made by
electronic funds transfer. Many states also require or allow electronic filing and payment by
electronic funds transfer. Also, many states require registration to do business in the state so a tax
advisor should be consulted.
10. Taxable incomes for non-residential companies and individuals
Taxable income for a non-resident company is highly variable depending on what the company is
doing in the United States and if any treaties apply. Generally, these companies are subject to the
branch profits tax.
Individuals who are not considered United States residents for income tax purposes will be taxed on
their income from United States sources. Certain deductions and exemptions are allowed.
Individuals who are considered United States residents based on the number of days present in the
United States during the current taxable year and the prior two years, are taxed on their worldwide
income the same as United States citizens, but will also receive the full tax benefits enjoyed by
United States citizens.
11. Other pertinent information
Additional reporting is required for a United States corporation with at least 25% foreign ownership
or if the United States company owns greater than 10% of a company organized outside of the
United States. Also, a United States company that owns or has signature authority over a bank
account located outside the United States must file an additional report annually.
IPO quick facts
1. Bourses in the country
a. New York Stock Exchange (NYSE)
b. The NASDAQ
c. Chicago Stock Exchange (CHX)
d. Over the Counter Bulletin Board (OTCBB)
2. Admission requirements
New York Stock Exchange
a. Company size
NYSE Requirements (Section 103).
http://nysemanual.nyse.com/LCMTools/PlatformViewer.asp?searched=1&selectednode=
chp_1_2_2&CiRestriction=102&manual=/lcm/sections/lcm-sections/
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b. Trading record
Five (5) Years Prior.
Crowe Horwath International
Investing in the United States 2013
c. Public shareholding requirement
US$ 2.5 million.
d. Qualitative requirements
See NYSE Requirements Link Above.
e. Others
NYSE Requirements (Section 104).
http://nysemanual.nyse.com/LCMTools/PlatformViewer.asp?searched=1&selectednode=
chp_1_2_2&CiRestriction=102&manual=/lcm/sections/lcm-sections/
The NASDAQ
a. Company size
NASDAQ Requirements.
http://www.nasdaq.com/about/requirements.stm/t_blank
b. Trading record
One (1) Year Prior.
c. Public shareholding requirement
US$ 1.25 million.
d. Qualitative requirements
See NASDAQ Requirements Link Above.
e.Others
See NASDAQ Requirements Link Above.
Chicago Stock Exchange (CHX)
a Company size
CHX Requirements.
http://www.chx.com/content/trading_information/Listing_standards.html
b. Trading record
See CHX requirements link above.
c. Public shareholding requirement
US$ 250,000 to US$ 1 million.
d. Qualitative requirements
Two independent directors; audit committee depositary eligibility; management of good
character, etc.
e. Others
Other CHX Requirements.
http://www.chx.com/content/trading_information/Listing_Gov_Standards.html
Over the Counter Bulletin Board (OTCBB)
a. Company size
OTCBB Requirements.
http://www.otcbb.com/issuerinformation/issuerinfo.stm
b. Trading record
Maintain current filings with the SEC.
3. Specific requirements for specific Industries
Specific requirements for all industries are noted in the requirement links noted above. In addition
to the above, the Jumpstart Our Business Startup (JOBS) Act has encouraged the funding of
emerging growth companies through easing various security regulations and allowing individuals to
become investors.
See additional information at:
http://www.gpo.gov/fdsys/pkg/BILLS-112hr3606enr/pdf/BILLS-112hr3606enr.pdf and
http://www.sec.gov/divisions/corpfin/guidance/cfjjobsactfaq-title-i-general.htm
4. Typical issuance size
NYSE and NASDAQ: Issuance sizes are noted in the requirement links noted above.
5 Moratorium imposed
Following the filing of the IPO registration statement will be a brief waiting period as the SEC and
other regulators review the various filings made.
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Crowe Horwath International
Investing in the United States 2013
6. Securities quoted allowed in foreign currency
No.
7. Requirements for the appointment of a resident / local director and board composition
NYSE/NASDAQ: Majority of board must be independent; CHX: Each issuer shall maintain a board
of directors consisting of a majority of independent directors; however, each small business issuer
shall be required only to maintain a board of directors consisting of at least 50% independent
directors. OTCBB: No requirements.
8. Restrictions for foreigners
Foreign private issuers conducting an IPO in the United States must generally register the offering
on Form F-1 under the Securities Act.
9. Methods of offer and restrictions
There are generally four (4) ways for a company to sell its shares:
1. the initial public offering (IPO)
2. the direct public offering (DPO)
3. the reverse merger and
4. restricted offerings under Rule 144 of the SEC.
10. Timeline
Timeline of a company going public through an IPO is typically as follows: pre-IPO compliance with
certain Sarbanes-Oxley requirements, due diligence preparation, selection of managing underwriter,
conducting the offering, filing of the registration statement with the SEC, waiting period and the
post-effective period. This process can take several months, to over a year to complete.
Timeline of a company going public through a reverse merger is as follows: shareholders of the
private company purchase control of the public shell company and then merge it with the private
company. The private company shareholders receive a substantial majority of the shares of the
public company and control of its board of directors. This transaction can often be completed within
weeks. A Form 8-K is filed with the SEC immediately following the reverse merger.
11. Approving authorities
Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA).
12. Estimated cost involved
See section I chapter F of RR Donnelley’s 2012 Publication The Public Company Primer A Practical
Guide to Going Public, Raising Capital and Life as a Public Company, for an example of estimated
company expenses for an IPO:
http://fsgmarketing.rrd.com/mk/get/RR%20Donnelley%20IPO%20Primer%202012.pdf?_A=27707&_
D=16321&_V=6&_F=10914&_EALANG=en_US
Additional initial costs for the different Bourses are as follows: NYSE: maximum of US$ 250,000;
NASDAQ: Based on aggregate number of shares to be listed, plus a US$ 25,000 non-refundable
application fee with a maximum of US$ 225,000; CHX: The initial listing fee is US$ 15,000 for each
issue of common stock and US$ 2,500 for each issue of preferred stock or Rights of Purchase
Plans regardless of the number of shares covered by the application. An annual maintenance fee of
US$ 1 per 20,000 shares is thereafter charged to maintain the listing. The minimum annual
maintenance fee is US$ 1,250 per issue, with an annual maximum maintenance fee of US$ 3,000;
OTCBB: US$ 6 per security per month.
13. Restriction on secondary listing or dual listing
A stock can be listed on any exchange as long as it meets the requirements for that exchange. A
company can list its shares on more than one exchange and this is referred to as dual listing. A
security cannot be traded on the NASDAQ and the OTCBB at the same time because the OTCBB is
a quotation service for securities which are not traded or listed on the NASDAQ or a national
securities exchange. Securities can be dual listed on the OTCBB and foreign exchanges.
14. Language required for:
a. Prospectus: English
b. Annual reports: English
c. Audit report: English
15. Audit opinion required for
a. IPO
Unqualified, generally two (2) to three (3) years, can be retroactive.
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.
b. After IPO
Two (2) - three (3) years depending on whether the filer meets the definition of an accelerated
filer or large accelerated filer, as defined in SEC Regulation 12B.
Crowe Horwath International
Investing in the United States 2013
16. Requirements of accounting auditors to be appointed
The auditor must comply with independence provisions set forth in Title II of the Sarbanes Oxley
Act of 2002 (SOX), SEC regulations related to independence, registration and good standing, and
must be registered with the Public Company Accounting Oversight Board (PCAOB).
Foreign auditors are generally allowed to sign on audit reports as long as they meet the above
requirements as well as meet SEC requirements related to the firm’s practice, quality control
procedures; and knowledge of US GAAP, US audit standards, PCAOB standards and SEC rules
and regulations. The SEC may also require a foreign firm to obtain a review by a qualified United
States firm.
17. Delisting standards from bourses
NYSE Requirements (Section 804), NASDAQ Requirements (5800 Series), CHX: In accordance
with SEC rules regarding the delisting of securities on any exchange, as required by the Securities
Exchange Act Rule 12d2-2 (c) (3) the CHX provides the following information. OTCBB: Issuers
must remain current in their filings with the SEC or applicable regulatory authority. If not remained
current, issuers will be delisted from the OTCBB.
Human resource requirements
1. Special labour standards to take heed of
The Fair Labor Standards Act is a federal statute of the United States and established a minimum
wage, guaranteed time and a half for overtime in certain jobs, and prohibited most employment of
minors. See additional information at: http://www.dol.gov/compliance/laws/comp-flsa.htm
Equal employment opportunity commission is an independent law enforcement agency that
enforces laws against workplace discrimination. See additional information at: http://www.eeoc.gov/
2. Social welfare: insurance, pension, etc
Federal, state and local withholding taxes are required in those jurisdictions imposing an income
tax. Employers having contact with the jurisdiction must withhold the tax from wages paid to their
employees in these jurisdictions. This is referred to as income tax withholding, see
http://en.wikipedia.org/wiki/Tax_withholding_in_the_United_States for a non-authoritative summary.
Social Security and Medicare are social insurance programs that are primarily funded through
dedicated payroll taxes called Federal Insurance Contributions Act tax (FICA). See additional
information at http://ssa.gov/
Occupational Safety and Health Act is the primary federal law which governs occupational health
and safety in the private sector, see additional information at: http://www.osha.gov/. The Affordable
Care Act is the health insurance reform legislation signed into law on March 23, 2011, see
additional information at: http://www.dol.gov/ebsa/healthreform/
3. Requirements for retirement benefits
Employment Retirement Income Security Act (ERISA) is a federal statute of the United States and
establishes minimum standards for pension plans. See additional information at:
http://www.dol.gov/compliance/laws/comp-erisa.htm
4. Legal annual leave and public holidays
Family and Medical Leave Act of 1933 (FMLA) requires employers to provide unpaid leave for
qualified medical and family reasons to their employees. See additional information at:
http://www.dol.gov/whd/fmla/
For information regarding public holidays as well as SEC filing deadlines:
http://www.rrdonnelley.com/industry-solutions/financial-services/resources-tools/library/home.aspx
5. Brief information on labour unions
Labor unions in the United States are legally recognized as representatives of workers in many
industries. The majority of activity by labor unions in the United States focuses on collective
bargaining over wages, benefits, and working conditions for their membership and on representing
their members if management attempts to violate contract provisions.
Private sector union members are regulated by the National Labor Relations Act (NLRA). For more
information see https://www.nlrb.gov/national-labor-relations-act. The law is overseen by the
National Labor Relations Board.
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Investing in the United States 2013
Withdrawal procedures
1. Company: legal procedures required for liquidation
A liquidator is appointed, either by the company shareholders passing a resolution (voluntary
liquidation) or by the Court making an order (compulsory liquidation).
The liquidator collects the assets of the company (including uncalled capital; that is, amounts
unpaid on shares) and pays the creditors in order of priority.
The liquidator distributes any surplus funds to the shareholders.
The company is then formally dissolved.
2. Company: tax requirements
Liquidating corporations must complete and submit a Form 966 to the IRS.
(www.irs.gov/pub/irs-pdf/f966.pdf)
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The better work men do is always done under
William Carlos Williams
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